Help with Cost Basis, Total Sale Price, and Asset Sale Price on Rental Property

[mydogsmom]

Can someone please help me with figures to enter on 2020 return? I am going around and around. I am just doing my 2020 taxes. I sold a rental. I rented it from 1/1 to 2/15/20. I have prorated the expenses (taxes, insurance, HOA, mortgage interest) and applied them against the rental income for the 1.5 months. Please tell me if this pro-ration is correct. The property was held out for sale from 2/16 - 7/23/20 when it sold. I bought the property 10/26/05 for $114,500. It was always 100% rental property. In case you need to know this, there was only a $25 HUD-1 charge on the purchase settlement statement other than taxes, HOA, insurance, and mortgage interest.

Next problem for me is Total Sale Price. It sold for $118,000 on 7/23/20. The only costs at sale that I paid were Commissions $6490, Title Curative Work $150, Title Mail Fee, Recording Fee $25. So, is my Total Sale Price $111,185? Here's where I get confused...did I properly subtract the sales fees here or do they get added to the cost basis??

Cost Basis: I have expenses of $10,641 for fixing up the property (Painting kitchen cabinets, granite countertops, interior & exterior painting, roof repairs). Landscaping (some brickwork & mowing) $360. Insurance $502 (2/16 - 7/23), HOA $310 (2/16-7/23), Utilities $411 (2/16-7/23). Can I add these costs to the original $114,500 to equal the cost basis of $126,724?  

Asset Sales Price: Do I use the $118,000 or $111,185? I know from tax statement that land is 11.6% of value.

If $111,185, Land Sales Price is $12,897 and Asset Sales Price is $98,288. 

If $118,000 is the Total Sale Price then Land Sale Price is $13,688 and Asset Sale Price is $104,312.

If allowed the total expenses above of $12,224 then Land Sales Expense equals $12,224 x 11.6 = $1418, Asset Sales Expense: $12,224 - $1418 = $10,806.  Please help on which total sale price to use and which expenses are allowable.

As an aside, anyone have a guesstimate on interest and fine for not filing July 15, 2020 on roughly $14,000 owed so I can brace myself? I did not file for an extension. 

Thank you so much for taking the time to help me so I can get these taxes filed! I appreciate the help.

[ColeenD3]

Start with your cost basis and add the settlement costs on purchase, improvements and closing costs on the sale to the basis.

Your expenses for the time rented are taken on Schedule E for the year you paid them. The expenses when it was not available to rent are not deductible. This is a personal expense. ( mowing) $360. Insurance $502 (2/16 - 7/23), HOA $310 (2/16-7/23), Utilities $411 (2/16-7/23).

Vacant while listed for sale. If you sell property you held for rental purposes, you can deduct the ordinary and necessary expenses for managing, conserving, or maintaining the property until it is sold. If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses.

[mydogsmom]

Thank you for replying! When you say "settlement costs on the purchase" is that the $25 HUD-1 charge that I see on the purchase or does that also include the HOA, taxes, utilities, insurance, and interest that I paid at the original purchase?

[ColeenD3]

Not everything you pay is a settlement charge.

Items added to basis.

 You can include in your basis the settlement fees and closing costs you paid for buying your home. A fee is for buying the home if you would have had to pay it even if you paid cash for the home. The following are some of the settlement fees and closing costs that you can include in the original basis of your home.

Abstract fees (abstract of title fees).

Charges for installing utility services.

Legal fees (including fees for the title search and preparation of the sales contract and deed).

Recording fees.

Surveys.

Transfer or stamp taxes.

Owner's title insurance.

Any amount the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, cost for improvements or repairs, and sales commissions. If the seller actually paid for any item for which you are liable and for which you can take a deduction (such as your share of the real estate taxes for the year of sale), you must reduce your basis by that amount unless you are charged for it in the settlement.

[Carl]

Just throwing in some additional clarifications here.

(Painting kitchen cabinets, granite countertops, interior & exterior painting, roof repairs). Landscaping (some brickwork & mowing) $360.

I have no doubt the countertops are a property improvement that add to the cost basis of the house. But using my imagination here, I'm seeing all the kitchen stuff including the painting in the kitchen, as "a part of" the property improvement. So I'd make that a one lump sum property improvement.

Your roof repairs are a hard call here. If you had a new roof put on, that's a property improvement. Otherwise, you can't claim it as a rental expense unless the cost was incurred while the property was classified as a rental. If you need further guidance on determining if it was a roof repair or property improvement, then let us know what was done to the roof, as well as about how much it costs.

Is the brickwork pertaining to flowerbeds maybe? Depending on the actual work done and the cost, that could be a property improvement. Otherwise, it's a repair that can only be claimed on SCH E if the cost was incurred while the property was classified as a rental.

As for the mowing, that's a maintenance expense that can only be claimed on the SCH E if incurred while a rental. Otherwise, you can't enter, add or include that cost anywhere really. (It might qualify as a carrying cost for the sale expenses part.)

Insurance $502 (2/16 - 7/23), HOA $310 (2/16-7/23), Utilities $411 (2/16-7/23). Can I add these costs to the original $114,500 to equal the cost basis of $126,724?

Only those cost incurred while classified as a rental are deductible on SCH E. Otherwise, the HOA and Utilities are just flat out not deductible anywhere. I know the insurance isn't deductible anywhere for the period of time it was not classified as a rental.

Now some of the above costs I outlined (definitely not all of them) you may be able to claim as carrying costs or costs to prepare for sales, with your sales expenses if they don't qualify as a SCH E rental expense.